As the price war for managed care contracts rages, the two major commercial labs continue to raise both their staff productivity and revenue per FTE, according to LIR’s review of benchmarking statistics. From 2005 to 2006, Quest Diagnostics (Lyndhurst, NJ) raised their annual revenue per FTE a whopping 13.9%, from $132,600 per FTE (2005) to $151,000 (2006). Similarly, LabCorp (Burlington, NC) raised their annual revenue per FTE 3.6%, from $138,600 (2005) to $143,600 (2006).

Full-time employees (FTEs) at Quest performed 14.6 requisitions per workday in 2006, up slightly from 14.4 in 2004. LabCorp’s dropped slightly from 15.5 reqs/FTE in 2004 to 15.3 reqs/FTE in 2006, although 15.3 was their recorded reqs/FTE in 2003.

Quest’s revenue per major laboratory has jumped 32.5% from 2004 ($147.8 million/laboratory) to 2006 ($195.9 million/laboratory). Quest’s patient service centers averaged $1 million per PSC, up 17.5% from 2004. LabCorp generated $99.7 million per major laboratory in 2006, up 3.4% from 2004. LabCorp’s PSCs averaged $703,000, down 19.9% from 2004 ($878,000 per PSC).

These 2006 numbers are important benchmarks because of the shift in business caused when United Healthcare jumped from Quest to LabCorp. In response to the 10-year contract, LabCorp opened a significant number of PSCs to handle the influx of tests. The contract was initiated in January 2007.

LIR reviewed the 2006 annual reports of the three largest commercial labs to get a picture of their overall productivity. Here are details of our analysis:

Revenue per full-time employee averaged $162,881 for 10 major commercial laboratories in 2006. This is up 9.4% from 2004, although this number is a reflection of the industry as a whole and has variability due to changes in the makeup of the list of 10 laboratories. However, it indicates a healthy growth averaging approximately 4.5% to 5% per year in the industry as a whole.

Clarient (Aliso Viejo, CA) reported the highest revenue per employee in 2006, of $241,726, followed closely by Psychemedics (Acton, MA) at $241,237 per employee. A distant third was the laboratory division of Genzyme Genetics (Cambridge, MA) at $160,600 per employee. Quest ranks fourth at $151,053 followed by Monogram Biosciences (South San Francisco, CA) with $147,692. Most of the remaining labs are clumped in a similar range as Monogram, with LabCorp appearing fifth at $143,632, Bio-Reference (Elmwood Park, NJ) reporting $142,745, Orchid Cellmark (Princeton, NJ) reporting $142,964 and Enzo Clinical Labs (Farmingdale, NJ) at $141,778. Medtox Scientific (St. Paul, MN) is a distant tenth at $115,384.

Pre-tax income is a different story with Psychemedics rating a skyrocketing $81,443 pretax income per employee, followed by LabCorp at $28,836, and Quest Diagnostics at $24,899. Clarient, which showed very high revenue per employee, however, indicates it has lost -$144,388 per employee in pre-taxed income. Orchid and Monogram also reported losses in pretax income per employee of -$28,392 and -$119,076, respectively.

The two biggest labs, Quest and LabCorp, derive 44% of their revenue from fee-for-service health insurance plans; Medicare and Medicaid accounts for 20%; client billing to hospitals and physician offices accounts for 25%; direct billing to patients accounts for 5%.

Capitated managed care contracts represent only 6% of revenue at the big labs. Interestingly, this indicates that 94% of their business is open to competition from hospital outreach programs or other independent laboratories. The level of capitation varies by geographic region, and fee-for-service enrollees may be tied to preferred lab status, but it does seem clear that the majority of Quest’s and LabCorp’s business is not committed to contract and thus can be something of a bouncing ball in terms of the competition.

The average days in accounts receivable (DAR) at five commercial labs was 79.3 days in 2006, up slightly from 77.6 days in 2005. However, bad-debt expense dropped from 8.0% in 2005 to 6.8% in 2006. To break that down, in 2006, these five lab companies received payment an average of almost 78 days after sending out their bills and wrote off 6.8% of their net billings (after contractual allowances) as uncollectible.

Quest Diagnostics had the lowest DAR of 48 days, up slightly from 2005 (46 days). LabCorp and Medtox have similar DARs of 54 and 53.6, respectively.

Of these five companies, Enzo has the highest DAR of 124 days, down slightly from 127 in 2005. Bio-Reference is also high with 117 days. Their bad-debt expenses are high as a result, with 13% in 2006 for Bio-Reference and 12% for Enzo Clinical Labs.

April 2007 - Table of Contents

LIR April 2007 (full PDF issue)

Financial Benchmarks at 10 Major Labs: Quest and LabCorp See Gains in Revenue and Profit Per Billable Test

Aetna’s Lab Is Quest, LabCorp Takes a Hit

Kennedy to Fast Track New Bill to Regulate Lab Tests

Decatur Memorial Hospital Laboratory Enters the Molecular World

Benchmarking the Major Labs

Genova Diagnostics Buys Texas Reference Lab

Beckman Coulter to Buy Biosite for $1.55 billion

CMS Continues Rolling Out Medically Unlikely Edits

MDS Completes $615M Purchase of Molecular Devices

Lab Stocks Rise 3% Led by Orchid and Clarient

Biggest Challenges for AP Practices